Failure to Inform a Consumer That a Partial Payment Revives an Out-of-Stat Debt Could Be an FDCPA Violation, Court Says

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A U.S. District Court Judge in Kansas refused to dismiss a lawsuit that alleged that a debt collection letter was false and/or misleading because it failed to inform the consumer that a partial payment would revive the statute of limitations on otherwise time-barred debt.

The case, Yang v. Midland Credit Management, Inc., 15-2686, 2016 WL 393726 (D.Kan., Feb. 2, 2016) involved the following set of facts:

On January 2, 2015, Defendant, in an attempt to collect a debt, sent a debt collection letter to Plaintiff. The letter stated “[s]pecial offers are now available to help you resolve your unpaid T-Mobile account, which is owned by MIDLAND FUNDING, LLC (“MCM”). Select one of the three options below and get closer to having one less thing to worry about.” The letter showed Plaintiff’s balance as $1,629.69. The options included one discounted payment in full of $651.87, six monthly payments of $217.29, or to call an account manager for more options. The letter further stated:

The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, we may continue to report it to the credit reporting agencies as unpaid.

*If you pay your full balance, we will report your account as Paid in Full. If you pay less than your full balance, we will report your account as Paid in Full for less than the full balance.

The state of Kansas has a revival statute, which states that a partial payment on a debt revives the statute of limitations, regardless of how long the debt has been stale. Plaintiff alleged that if she made one of the six partial payments as offered in the letter, the effect of such payment would revive the statute of limitations.

Plaintiff claimed that MCM’s letter violated two sections of the Fair Debt Collection Practices Act (“FDCPA”): 1) §1692e(2)(A)’s prohibition on the “false representation of . . . the character . . . or legal status” of Plaintiff’s debt; and 2) § 1692e(10)’s prohibition on the “use of any false representation or deceptive means to collect or attempt to collect any debt.”

The case came before the court on MLM’s Motion to Dismiss Plaintiff’s Petition under Fed. R. Civ. P. 12(b)(1) [ Defendant argued the case was not ripe for adjudication] and (b)(6) [Defendant argued the case failed to state a claim for relief under the FDCPA.]

The court’s Memorandum and Order can be found here.

The court rejected MLM’s “ripeness” argument writing:

Defendant does not cite to, nor has the Court found authority to support the claim that a consumer must act upon a debt collector’s representations or deceptive acts in order to suffer an injury. In fact, such a requirement would appear to undermine the deterrent effect of strict liability. Defendant’s motion is denied on these grounds.

The court also rejected MLM’s “failure to state a claim upon which relief may be granted” argument, first discussing and applying the “least sophisticated consumer” standard to plaintiff’s claims, then determining that a motion to dismiss was not the appropriate procedure to decide the issue. The court felt that the matter was best resolved through a future motion for summary judgment. The court wrote:

The summary judgment stage is more appropriate to address the question of whether the letter violates § 1692e(2)(A) or (10) because Defendant’s letter does not inform Plaintiff that any partial payment would result in the revival of Plaintiff’s debt under Kansas law. Accordingly, the Court denies Defendant’s motion to dismiss under Rule 12(b)(6), and invites the parties to instead address in cross-motions for summary judgment the issue of whether the letter sent by Defendant violates § 1692e as a matter of law.

insideARM Perspective

The case is an interesting procedural discussion. It is not a resolution of issue presented. MLM sought to bring an end to the litigation through a motion to dismiss.  However, the court felt that the motion to dismiss the case under Fed. R. Civ. P. 12(b)(1) and (b)(6) was not the appropriate method to resolve the matter. Instead, the parties are directed to bring cross-motions for summary judgment, allowing the court to decide as a matter of law whether the letter violates the FDCPA.

insideARM will continue to monitor the litigation and report on the ultimate outcome.

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Posted in Collection Laws and Regulations, FDCPA, Featured Post .

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Continuing the Discussion

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  • avatar Sandy Leatham says:

    I can’t believe that people are not responsible for themselves. That we, collection agencies, have to spell out every law, every condition and every possible scenario in order to collect a debt THEY SIGNED for.
    If you get a bill and you question it, look it up yourself. Do your own research and be responsible for informing yourself. When are we going to ever see this ridiculousness end?
    You may cut your lip licking the envelope while mailing in your payment…
    ~Geez

  • avatar Steven King says:

    Incredible. The court didn’t consider the contents of the letter. It is only focused on statutes that may or may not apply to what actions a debt collector may or may not take regardless of the actions actually taken. The letter clearly communicated the actions the debt collector will and will not take. We constantly see hyper-technical suits where although the intent of the letter was not so, the words used could be construed to mean something different and therefore false, misleading or deceptive. In this case, even the absolutely most “least sophisticated consumer”, assuming they can read, (based on what I have seen, I believe the courts definition of the least sophisticated consumer is one of total incompetence and incapable of reading much less entering into any agreement to pay) should be able to understand the statement “Because of the age of your debt, we will not sue you for it.” Regardless of Kansas statutes allowing for revival of the debt if a payment were to be made, MLM diametrically and without question, stated in its letter that it will not file suit on the debt. Since the entire purpose of reviving a debt is to allow a creditor to file suit on a debt, there is no ascertainable loss to the consumer nor was the letter false, misleading or deceptive in any way by not including language that reference K.S.A. § 60-520 in its notice. Unless of course, when using the words “I will not sue you”, they actually mean to the least sophisticated consumer that you will……

  • avatar SYSM says:

    “We will not sue you” does not mean, “we will not resell the debt to some other entity that might or might sue you in its discretion.” In states where there is a crystal-clear statute that part payment of a debt revives it, any consumer would want to know that before deciding whether to make partial payment. I think this is a pretty clear application of the FDCPA. Where it gets more murky is the states where there’s no clear statute on revival, but common law allows for revival.

  • avatar bill-jones says:

    There are four cases I’m working on now that mirror this deceptive task. An out of statute debt, collector offers cheap payment plan, includes discolser that the debt is out of statue and they will not sue, collects $25, and files suit 3 months later. Even though the process started way before this case and I approached this differently, all four of my cases will result in my clients getting paid, just working on the settlements now.

    I find it amazing that a collectors will complain that they need to spell everything out for a consumer and/or that a consumer should research on their own. and then flip around and say a collector needs more “Clarification” on the statutes and question the threshold of the least sophisticated consumer.

    Don’t play this: How dumb can a consumer be? How should we know the level of such stupidity? How can we protect ourselves? Seriously, we live in a litigious society where BOTH sides, collectors and consumers, abuse the court system.

    If we have to put warning labels on a cup of coffee to warn the contents will be “Hot”, that sticking your hand into a lawnmower may result in losing a limb, that a plastic bag should not be left in a baby crib, etc, etc, there should be no question or surprise when this type of case shows up.

    Midland has been selling lawnmowers with improper warning labels, plain and simple – because someone called them on it without sticking their hand in the chute and losing it, does not mean they cannot pursue this.

    If they want to pursue a debt that is out of statute, they are treading in rough waters once the letter is sent out; plain and simple. There is a risk when purchasing a debt $0.03 on the $ and a bigger risk trying to collect when out of statute. The first risk is losing your $0.03. Taking that bigger risk elevates the loss above the $0.03 and paying a fine.

    Midland is popular for pushing the boundaries of the FDCPA and taking advantage of consumers ignorance and fear of litigation. It is the main reason why they have been in court so many times recently and had to pay millions in fines; this goes way beyond aggressive lawsuits.

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